Avigdor Lieberman, the far-right politician campaigning on a platform that Israeli Arabs should pledge loyalty to the state or lose their right to vote, has become the pivotal figure in next week's election after two polls showing his party has overtaken Labour.

The Yisrael Beiteinu party headed by the Moldovan-born Mr Lieberman, who lives in a West Bank Jewish settlement and has been depicted by his critics as an Israeli version of Jean-Marie Le Pen or Jorg Haider, is in third place with a projected 19 or 17 seats in two newspaper polls yesterday.

If the party did take that number of seats, it would mean it has performed well beyond its original base among immigrants from the former Soviet Union and is in pole position to emerge as the kingmaker determining whether Likud's Benjamin Netanyahu or Kadima's Tzipi Livni can best form the next coalition government

The leaders of all three main parties have left open the possibility of joining a coalition with Yisrael Beitenu, including Labour's Ehud Barak, who has provoked sharp internal dissent by refusing to rule out the possibility.

The poll results underline the growing appeal of Mr Lieberman's hardline nationalist policies, which beside his "no loyalty, no citizenship" demand also includes a plan to redraw the country's borders to make more than 100,000 other Israeli Arabs citizens of the West Bank as part of a land "swap" in which Israel would annex the territory occupied by most West Bank settlements.

Nowhere do Mr Lieberman's bitterly controversial proposals touch a rawer nerve than in the northern Arab hill city of Umm el Fahm, at the heart of the Wadi Ara triangle. At a stroke, residents would lose their status – and voting rights – as Israeli citizens.

Said Abu Shakra, director of the town's well-known art gallery, and a long time promoter of co-existence between Jews and Arabs, said he now felt "depressed and frustrated" in the face of the ascendancy of Mr Lieberman, who once proposed the bombing of Egypt's Aswan Dam and suggested that Arab Knesset members who had talks with Hamas representatives should be executed.

Mr Abu Shakra, who is proud that a Jewish Israeli architect, Amnon Bar On, has won an open competition to design the gallery's new premises, recalled that in 1998 Yoko Ono staged a successful exhibition in the town entitled Open Window – dedicated to the idea of inter-community dialogue.

This spirit had been broken once by the outbreak of the second intifada, he said. "It took us eight years' work to build dialogue again and now it is being destroyed, this time by Lieberman." Seeing similarities in Mr Lieberman's rise to that of Hitler in pre-war Germany, Mr Abu Shakra added: "I have many Jewish friends who know that Lieberman is very destructive for all people, Jews as well as Arabs."

Umm el Fahm's sense of becoming a target for the extreme right has been compounded by the provocative plans of Baruch Marzel, an extremist Hebron settler who has criticised Mr Lieberman for not being right wing enough. Mr Marzel intends to spend election day here as a teller at a polling station. Mr Abu Shakra warned: "My own view is that the best thing to do with [Mr Marzel] is to ignore him, but not everybody here thinks like me."

Afo Agbaria, a local surgeon who is a candidate for the Communist joint Arab-Jewish Democratic Front – or Hadash – said that Mr Lieberman's success was a "danger not for Arabs only but for democracy in Israel", adding that history showed that "those fascists that got to the leadership got there by election". But Dr Agbaria insisted that the impact of Mr Lieberman would be to increase voting for the Arab parties – including his own, which he predicted would add a fourth seat in the Knesset. He said a campaign by the Islamic Party to boycott the election would be largely ignored.

Evidence to support this was mixed in the town yesterday. Coffee shop owner Mohammed Jabarin, 50, said that while he would be voting for the Democratic Front and thought Knesset representation was important, public "depression and frustration" because of the war in Gaza and Mr Lieberman's rise would reduce the turnout. He said of the "loyalty" demand: "Arabs in Israel will be loyal when we get our rights." Repeating widespread complaints of anti-Arab discrimination, he added: "This means better job opportunities and rights to own land."

Meanwhile, Farid Juma Agbaria, 63, was – unusually – more sanguine about Mr Lieberman. "He is shouting slogans now but he will stop when he gets to power," he said.

Amal Mahajne, 38, said that, although she was not an Islamic Party member, she would boycott the poll. She said this was not really because of Mr Lieberman: "He may kill us but we are not afraid. We will not get out of our land", but because of Israel's invasion of Gaza. If Labour – led by Defence Minister Barak – "can do this when it pretends to believe in peace, what will the other parties do?" She said that whether she would vote in any subsequent election depended on how the Arab parties performed.

Danny Ayalon, a former Israeli ambassador to Washington, has along with the former Likud MP Uzi Landau helped to lend Mr Lieberman an air of establishment respectability by joining his campaign. Mr Ayalon stopped short this week of saying that the "loyalty test" for Israeli Arabs – under which they would pledge allegiance to the Jewish state and agree to take part in civilian national service – was a precondition for joining other parties in a coalition. He said that it would be "very important" in any talks with potential partners after Tuesday's poll.

He said the loyalty test was a "response" to the fundamental criticisms of Israel levelled over the past 20 to 25 years by "some in the Arab community, basically its leaders, who are the ones inciting the population".

Avigdor Lieberman: In his own words

"If it were up to me I would notify the Palestinian Authority that tomorrow at 10 in the morning we would bomb all their places of business in Ramallah."

"World War Two ended with the Nuremberg trials. The heads of the Nazi regime, along with their collaborators, were executed. I hope this will be the fate of the collaborators in [the Knesset]."

"We'll move the border. We won't have to pay for their unemployment, or health, or education. We won't have to subsidise them any longer."

"When there is a contradiction between democratic and Jewish values, the Jewish and Zionist values are more important."

"A real victory can be achieved only by breaking the will and motivation of Hamas to fight us, as was done to the Japanese in the last days of World War Two."